Government Contracts (SMEs)

Debate between Iain McKenzie and Lord McCrea of Magherafelt and Cookstown

Wednesday 28th January 2015 Westminster Hall

[Mr Iain McKenzie (Inverclyde) (Lab)]

I congratulate the hon. Gentleman on securing the debate. He touched on the need for broadband in small businesses. Especially in rural communities, we are seeing the difficulties of getting that high broadband speed. Does he feel, as I do, that that excludes a lot of small firms from bidding for contracts, especially e-procurement ones?

[Dr McCrea]

I wholeheartedly agree with the hon. Gentleman. The lack of an up-to-date and modern broadband connection makes it very difficult to get into Government contracts.

To promote the further growth of SMEs, following on from the recommendation in Lord Young’s report, a new scheme was designed to make it simpler for small firms to win public sector contracts, which are estimated to be worth £230 billion a year. In addition, there was a commitment to tackle the late payment of small firms to ensure that those small businesses supplying the public sector and its supply chain were paid at the same time as the large contractors.

In May 2013, Lord Young published “Growing Your Business”, a report on growing micro-businesses following on from his report on entrepreneurship and start-ups published in May 2012. The 2013 report makes a number of policy recommendations for businesses employing fewer than 25 people, including the establishment of a small business charter and, crucially, a

“new ‘single market’ commitment to ensure a simple and consistent approach is taken across public sector procurement.”

In 2012-13, the public sector spent £230 billion on procurement of goods and services, including capital assets, accounting for 34% of total managed expenditure. Of that £230 billion, approximately £38 billion was capital procurement, the rest being current. Of the current procurement, approximately £40 billion is by central Government, £84 billion by local government, £50 billion by the national health service and £13 billion by the devolved Administrations.

Hon. Members will note the public interest in several recent awards of major procurement contracts, which have attracted scrutiny and even criticism from some hon. Members. In the light of the recent difficulties, the Government set themselves a target of procuring 25% of goods and services by value from SMEs by 2015, with the flattering words that such businesses are

“a crucial engine for growth”

as they account for 99.9% of UK businesses.

Research by the FSB reveals that every £1 a public body spends with a small business generates 63p of additional benefit to the economy, compared with 40p of additional benefit when spent with a large business. Although there is much ongoing debate about the advantages and disadvantages of EU membership and whether the UK should remain within its bureaucratic quagmire, the position remains that the Government not only can but should do more to support SMEs in accessing public procurement in compliance with EU diktat.

[Dr McCrea]

I thank my hon. Friend for making that point. However, to give an illustration from my own constituency experience, I often find that a small business not only finds it difficult with all the filling in of forms, but is blocked from getting into contracts. That is the issue that I want to get to the heart of, but I must first lay the foundations.

A core principle of the EU is to establish a single market that encourages trade and maximises value for the taxpayer in public procurement, obtaining the latter through increased competition by allowing companies from other EU nations to bid for contracts. As SMEs are crucial to the UK’s economic recovery, what have the Government done to encourage and assist them in accessing EU markets and public procurement in other EU member states?

EU procurement rules include transparency, fairness and non-discrimination. They apply to SMEs accessing public procurement in other EU member states, but do nothing to tackle those issues within the United Kingdom, as such rules do not apply. It remains an anomaly of the single market rules that, although under EU law one member state is not allowed to discriminate against an SME from another member state as part of public procurement of goods and services, subject to certain criteria, member states are entitled to act in a discriminatory fashion towards their own nationals.

It is admirable that the coalition Government have engaged with SMEs as one of their two main priorities concerning public procurement and that they intend to achieve that aim by making the procurement process

“much simpler, more open and less bureaucratic—so all businesses, no matter what their size, have a chance of success”.

However, the realisation of that priority, by opening doors for SMEs and providing them with the tools to apply, will make the real difference to our businesses and propel this country’s economic recovery forward.

[Mr McKenzie]

The hon. Gentleman mentioned Europe and the European strategy to exclude others and source products and services more locally. How does he feel about the playing of the green procurement card, which seems to be natural across Europe? Should we adopt that strategy and say that, in the spirit of green procurement, we will source as locally as possible?

[Dr McCrea]

I would not like to make policy on the hoof. An array of party colleagues are listening carefully and we are coming up to an election, so I would rather that my party make any policy decision.